Foreign portfolio investors (FPIs) have been driving stock markets to new peaks daily, sending investors into a buying frenzy. The benchmark Sensex surged by around 10% in the first quarter of fiscal 2024, and the benchmark index has spurted 2,226 points or 3.53 percent in the last six sessions. Domestic stock markets continued their rally on Tuesday with BSE Sensex crossing the 65,000 level on Monday, hitting a new high of 65,586.60. The NSE Nifty jumped to 19,321.45 in early morning trades.
The major driver of these market surges is the return of FPIs, buoyancy in global markets, strong macroeconomic fundamentals, and the easing of inflation in India. Global support to the bullishness comes from the US, where the market is resiliently supported by better-than-expected Q1 GDP growth of 2% and declining weekly jobless claims. This resilience of the US economy is the strongest pillar of support for the global markets now.
India’s stock market trend was broad-based, owing to the outperformance from the energy, financial, metal, and FMCG sectors. Economic activities are gaining strength with the manufacturing PMI level at 57.8, indicating sustained demand for products and fostering a sense of confidence in the manufacturing prospects. In the April-June quarter, FPIs pumped in Rs 1.02 lakh crore ($12.5 billion) into equities. As much as Rs 14,803 crore ($1.80 billion) FPI inflows into equities came on June 30 when the Sensex and Nifty closed at all-time peaks. They remained consistent buyers, with average daily inflows of around Rs 1,100 crore in the first quarter.
Domestic institutions (DIIs) led by LIC, insurance companies, and mutual funds are not very active in the ongoing bull run. DIIs who were big buyers when the market was down in the second quarter and last quarter of FY2022-23 are now sellers on many days. Retail investors should be cautious, as there is no room for exuberance or going overboard with the ongoing market rally.
In July, the market trend will be influenced by auto sales numbers in June, first quarter results, the progress of the monsoon, and the Fed rate decision and commentary by the month’s end. Retail inflation for June will also be an indicator of the future course of action by the RBI.
As a fund manager puts it, the market always fears the unknown which is lurking in the shadows. If FPI inflows continue at this level, the key indices will witness scale peaks in the coming days. However, the market is likely to witness occasional correction as prices of heavyweights have already shot up.